Long-term gains often can only be achieved by taking short-term risks. There are financial risks to starting one’s own business or buying stock in a shaky new startup firm, but there can also be rich rewards. Similarly, changing economic policies can be risky. Policy changes that are good for society in the long run can threaten short-term interests.
Individuals fear they will be worse off if change occurs. Such threats seem immediate and concrete, while the possible benefits of change are abstract, uncertain and possibly far in the future. The result is that we get stuck in policy ruts where many of us are worse off than we have to be. We get locked into things because no one is willing to have their boat rocked.
Farmers in Minnesota and the rest of the United States are certainly in a trade-policy rut. Our agriculture is highly dependent on exports, particularly of crops like wheat, soybeans and corn, and has been for 35 years. If the U.S. were a closed economy, prices for these crops would have to fall. Expanding exports is crucial for Minnesota farmers, especially in the long run.
Some farmers, however, feel threatened by the policy changes required to achieve agreements to expand trade. These include the Central American Free Trade Agreement or the Doha round of World Trade Organization negotiations scheduled to conclude in Hong Kong next week. For example, import restrictions keep U.S. sugar prices well above levels that would prevail if trade were free. Minnesota sugar beet producers would suffer if such restrictions were abolished. Prices and incomes would go down, as would the value of farmers’ shares in sugar beet cooperatives.
Developing countries such as Brazil, Argentina, South Africa and Thailand will not accept a trade agreement that does not lower subsidies to crop producers or exporters in Japan, the United States or the European Union. Nor will they accept one that does not lower import restrictions, as we have on sugar and dairy products, or as the EU has on virtually every agricultural product producible in Europe.
Minnesota sugar and dairy producers understandably oppose such changes. So do the highly coddled cotton producers in the South and Southwest.
Wheat, corn, barley and soybean producers are ambivalent. They would like to see more exports, but don’t want to lose government payments in any form. Soybean producers see threats in burgeoning output in Brazil, Argentina, Paraguay and Uruguay.
The upshot: Farm support for further trade deals is tepid at best. It reflects what farmers correctly see as their interests today. But such short-run views could foreclose the long-run opportunity.
U.S. farmers have strong fundamentals to work with. Only a few countries have the soil, climate and skilled farmers to be major agricultural producers and exporters. Along with Canada, Australia, Brazil and Argentina, we have the potential to earn tremendous amounts of money by selling food to other countries. The former Soviet Union could also, but is choosing to sit out the game.
Moreover, world demand for food can grow enormously. Rising incomes are much more important than growing populations in increasing demand for food. China and other East Asian nations are demonstrating that such growth is possible. Other nations in South Asia and South America may be on the same track.
Over the long run, having a billion Chinese earning $10,000 rather than $2,000, or a billion Indians earning $5,000 instead of $500 is enormously more important for Minnesota farmers than whether or not we import sugar, cheese or even ethanol.
The potential for increased demand for farm products over the next half-century is much greater than the potential for increased supply. But for that potential demand to materialize, the world needs continued economic growth. Greater trade is crucial to bolstering continued economic growth in Asia and elsewhere.
The agricultural subsidies and import barriers to which U.S., European and Japanese farmers cling were rational responses to the Great Depression and to post-World War II hunger. But more than a half-century has passed since then. Such policies now are detrimental to greater global prosperity.
U.S. farmers as a whole should support the reforms of farm subsidies and import restrictions that are key to breaking the WTO negotiation logjam. Success in Hong Kong would make their children and grandchildren — on or off the farm — better off than if we remain in a rut.
Human nature is such, however, that short-term fears continue to dominate. Any betting person would wager that the Hong Kong conference will end in failure. Trade reform likely will be set back a decade. That is a tragedy — for Minnesota as well as the rest of the world.
© 2005 Edward Lotterman
Chanarambie Consulting, Inc.